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Can Meta Stock Get Its Mojo Back with Q3 Earnings?

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Trading 61% from its highs, investors will be closely watching Meta Platforms (META - Free Report) Q3 earnings release on October 26. META will give further insight into the effects of slower advertising spending on social media platforms. Snap (SNAP - Free Report) reported earlier in the month with its stock already feeling the impact of marketers scaling back on ad spending.

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META has been hit hard this year and investors will hope a stronger than expected Q3 can help the stock get back on track. Investors will also get more insight into the company’s expansion efforts into the metaverse or if CEO Mark Zuckerberg will scale back to focus on its core businesses such as Facebook and Instagram as many shareholders have called for.

Facebook Mojo

One of META’s larger shareholders Altimeter Capital wants META Platforms to get its “Mojo Back” by cuttings its headcount expense by at least 20%, and reducing its annual capital expenditures by at least $5 billion to $25 billion. Additionally, Altimeter Capital thinks Meta Platforms should invest no more than $5 billion annually in the metaverse and shift its focus back to Facebook. This caused META shares to spike 6% today.

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Facebook accounts for the majority of Meta Platforms revenue through advertising. Earnings are starting to decline with the company focusing on building the Metaverse. This also prompted the company to change its name.

Last quarter, Facebook’s monthly active users and daily active users were up 1% and 3%, respectively. Still, the company’s revenue decreased -1% from Q3 2021 and missed earnings expectations by 1% at $2.46 a share. This was also the first time revenue had fallen since the company went public a decade ago. Wall Street will want to see if META was able to lower operating costs during the quarter amid a tougher operating environment and perhaps take heed in cutting back on metaverse expansion costs.

Q3 Outlook

The Zacks Consensus Estimate for META’s Q3 earnings is $1.88 per share, this would represent a -41% decrease from Q3 2021. Sales for Q3 are expected to decline -5% at $27.40 billion. Earnings estimates revisions for the period have largely gone down from $2.53 at the beginning of the quarter.

However, revisions have started to trend up again in the last 30 days. Year over year, META earnings are expected to decline -31%, but rise 10% in FY23 at $10.52 per share. Sales are expected to be down -1% this year but climb 8% in FY23 to $125.91 billion.

Performance & Valuation

Year to date META is down -60% to underperform the S&P 500’s -21% and the Nasdaq’s -28%. Although the operating environment has been difficult for most tech stocks, shareholders have pointed out META significantly underperforming the Nasdaq and are hoping a shift in concentration to its core business Facebook could get the stock back to its stellar performance over the last decade.

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Over the last 10 years, META has crushed the benchmark and the Nasdaq. Longer-term investors may see value in the stock trading around $137 per share. At current levels, META has a P/E of 13.6X. This is much lower than the industry average of 41.7X. Even better, META trades at a discount to its decade-high of 325.5X and the median of 31.5X.

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Bottom Line

Meta Platforms’ outlook and guidance will be just as essential as its Q3 earnings. Shareholders want to see the company slow metaverse spending and lower operating costs in this uncertain market environment. An earnings beat and stronger guidance could give the stock some momentum. Much of the continued appreciation in the stock could be based around the company getting back to its core business.

META currently lands a Zacks Rank #3 (Hold) and its Internet-Software Industry is in the top 33% of over 250 Zacks Industries. Longer-term investors could be rewarded for holding the stock as it trades at a steep discount relative to its past. And the Zacks Average Price Target suggests 78% upside from current levels.

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